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Kyrgyzstan to Cede Gas Network to Moscow

It looks like Moscow isn't interested in buying part of Kyrgyzstan’s gas infrastructure. It wants all of it.

After a week of dangerous energy shortages in Kyrgyzstan, which continued to leave thousands of customers in the capital without gas on Friday, Bishkek is finalizing a deal to sell Kyrgyzgaz to Russia’s state-run behemoth, Gazprom, officials say.

The shortages began when neighboring Kazakhstan stopped gas supplies to Kyrgyzstan on December 14, citing the need to supply its own customers. Kyrgyzstan had also constantly defaulted on payments and reportedly owed the Kazakhs tens of millions of dollars. The shut off happened to coincide with a bout of extreme cold – temperatures in Bishkek have hovered around -20 Celsius (-4 Fahrenheit) for the past week – leading some to speculate the shortage was a bargaining ploy. In any case, as more Kyrgyzstanis turned to electricity to cook and heat their homes, their country's aging infrastructure faltered, resulting in mass blackouts.

For years, observers have warned of a crisis like the one currently gripping the country, but politicians have done little more than bicker and postpone solutions – like find ways to cut rampant corruption in the sector and raise energy tariffs to cover basic maintenance.

As the crisis unfolded this week, Bishkek offered Gazprom 75 percent of Kyrgyzgaz for a nominal $1, noting that the company was recently appraised for approximately the value of its outstanding debts. But Kyrgyzgaz is not in a strong bargaining position and the Associated Press reports that Gazprom is looking to scoop up the whole thing.

Kyrgyzgaz’s [general director Turgunbek] Kulmurzayev traveled to Moscow this week to hold a new round of talks with Gazprom, which offered to buy up the entire company. Kyrgyzgaz is currently 87 percent owned by the state. Another 4.5 percent is held by social investment funds, with the remainder belonging to private investors.

“The Russians now want to buy the entire stock, even from private shareholders,” Kulmurzayev said in Bishkek.

Kulmurzayev gave no figure for the sale, but the sum is expected to be nominal due to the company’s outstanding debts of around $31 million. He added that Gazprom officials said they plan to invest $650 million over five years on modernizing Kyrgyzstan’s gas pipeline network.

“The price for fuel will be substantially cheaper than what is paid to Kazakhstan — $224 per thousand cubic meters — or Uzbekistan — $290 per thousand cubic meters,” Kulmurzayev said. “We hope Gazprom will solve the fuel delivery problem in 2013.”

Moreover, the deal (which has been on the table for years) is expected to allow Gazprom to begin tapping two fields in Kyrgyzstan’s south. Kyrgyzstan has limited gas reserves of its own, though a lack of investment has left them largely untouched. According to a September 2011 RosBusinessConsulting report, Kyrgyzstan pumps approximately 30 million cubic meters of gas, but consumes close to 750 million cubic meters a year.

Kyrgyzstan’s increasing reliance on Russia could be controversial. Moscow already has been pressuring Bishkek to join its new trade zone, the Customs Union of Belarus, Kazakhstan, and Russia. And Kyrgyz migrant laborers in Russia send home remittances worth approximately a third of Kyrgyzstan’s GDP, the World Bank said recently. From the AP story:

The sale of a major national asset to a company owned by a foreign government is likely to raise concerns. Russia has made similar efforts to gain control over important energy infrastructure in other former Soviet republics, such as Ukraine and Belarus.

But as politicians in Bishkek search for someone to blame for the crisis, they haven’t developed much of an alternative plan.